Physiomics Plc (PYC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Physiomics trading update investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And as usual, your participation will be highly appreciated. And I'd now like to hand over to CEO, Jim Millen. Good morning, sir.

Good morning, and thank you very much, and welcome to this what will be a fairly short trading update for Physiomics PLC, just following our RNS last week, mainly just rehearsing some of the points that were made in the RNS, hopefully to reassure you guys that everything is on track here at Physiomics, and I'll do my best to answer at least a good selection of the questions that have come through prior to the meeting and any that come through during the meeting. The usual disclaimer, please read it at your leisure. So I've left in the first 2 or 3 slides that I normally present just in case there are any shareholders attending today who are less familiar or newer to the company. So Physiomics, mathematical modeling company run effectively as a consultancy with expertise in cancer, in quantitative pharmacology, PK/PD modeling, in data analysis, curation and visualization and in coding, including some AI techniques. Two parts to our business really at the moment, the CRO consultancy part, which is set out on the left-hand side there, providing a soup to nut service, if that's what our clients want or much more specialized analyses usually for our larger clients, such as Servier most recently and Merck Serono over some years. On the other hand, we've had also a number of grants that we've used to fund some projects in personalized oncology, specifically in personalized dosing. I think those of you who follow the company will be very familiar with the several initiatives that we've got going on there at the moment, including an observational clinical trial being run down in Portsmouth and also a collaboration with DoseMeRx, which is part of a larger listed U.S. group called Tabula Rasa Healthcare. And again, we'll come back to give a little update on that later. We continue to add names both large and small to this list of clients. It's not a complete list because some of our clients require that we don't disclose their names for reasons of confidentiality. But I guess, most notably, since I gave my last update in April, I think it was. We signed a contract with the large French pharmaceutical company Servier. And also, we have worked with a number of small companies. I don't believe Ducentis is actually new. I did have a question about this. It was -- is a small project, and it may have failed to be announced for that reason. It's not disclosable in terms of its size, but we probably should have highlighted that. It has, in fact, been on our website for some months, in any case, for those of you who are more eagle eyed. I won't cover this slide again. I mean, we help our clients in various different ways to support the drug development, the drug R&D process from approximately mid-stage discovery through to approximately mid-stage clinical, which covers quite a broad swathe of the R&D process. We do focus mainly on cancer, but we do operate in some other areas as well. And recently, we've done projects in, for example, dermatology and immunology. We're doing quite a bit of work in immuno-oncology as we've highlighted in the past and indeed the focus of our most recent new client project, which is Servier is in that space, in the immuno-oncology space, which continues to be very interesting and a significant focus for R&D spend in the industry. So just running through the key points from the update last week, there may be 1 or 2 things in here that were not covered. Total income and profit after tax for the financial year ended 30th of June 2022 are likely to be in line with market expectations. By that, I mean in line with the forecast that our broker Hybridan puts out. Obviously, we have a pretty good idea about what our revenues are going to be. We're still tossing up the costs. So there may be some small variations, but I'm not expecting any surprises there. We should deliver on the numbers that the Hybridan has had out for us. I believe that following the RNS last week, Hybridan slightly increased -- well, they put out a new forecast for the current financial year. But in terms of the 1 that's just gone, then I think we're in good shape. I will just observe that we made a number of investments, deliberate investments during the year in areas where we felt they would lead to long-term value generation. And I guess the most significant investments were those in people, right? So we took on 2 new technical members of staff as well as a head of business development over the course of the year. By far, that's our biggest expansion since I've been CEO, which has been just around 6 years now. And I hope that you'll take that as a sign that we expect to grow the business going forward. For a long time, we have grown slowly and incrementally, controlled our costs out of a desire to control our costs and not add too much fixed headcount. We have maintained a fairly steady cash balance over the last years since our last raise a couple of years ago. But during that raise, we did say we wanted to invest in growth. And that's what I believe we've done, and that's what contributed to a slightly higher level of cash outflow in the last 12 months than we saw in the couple of years prior to that. But I just want to reassure the market that it's part of a planned investment program, which we eventually expected to deliver increased revenues. Despite all of this, our cash position remains, I believe, pretty strong. We've got GBP 687,000 in the bank at the end of the financial year. And assuming that there would be no change in the cash outflows, and that's not a forecast, by the way. We're still in the process of doing a formal forecast for the next couple of years, but just doing simple math, if the cash outflow remained the same, that would give us very close to 2 years of cash, which we're very comfortable with. Obviously, our objective will be to close that cash flow gap through increased revenues in that business. Also just to note that over the course of the financial year, we signed new or follow-on business with a number of existing clients, including those you see listed there. I won't read them all out. The little new one, Ducentis, I mentioned earlier. Ankyra was new this year. Bicycle was a repeat. Numab, I believe, was a repeat this year and then Merck KGaA of course. The other thing that I've noted previously is that we signed a first agreement with a French big pharma company, Servier. Apologies if there was any confusion on this. I did get a couple of questions saying is Servier the big company that we were talking about. And the answer is yes, Servier is the big company that we were talking about over the course of the last 6 months, and we were very pleased. We were delighted to be selected by them for what is quite a significant project, both in terms of its materiality, but also in terms of the targets that it's looking at, which I'm afraid I can't disclose, but I can say that they are novel targets in the immuno-oncology space. So we continue to build our capabilities in that area. The other thing that we did since our last announcement was retain a highly experienced new Non-executive Director in the form of Dr. Tim Corn. Tim comes to us with extensive experience of working in small companies, both private companies and AIM-listed companies where he's worked as a Non-executive Director and also as a Chairman from time to time. He's a very experienced drug developer. And obviously, that knowledge could be quite helpful for us as we consult with our clients and also look at other options for the company to grow more quickly going forward. In terms of the observational clinical trial, I actually have a slide on that, so perhaps I won't dwell on that too long at this point, but just to say that we are generating data. I think we've had about 25 patients. We're conducting an interim analysis now and the purpose of the trial, as we've mentioned on a number of occasions, is to further validate and develop the tool that we've put together over the last couple of years with grant funding. Then just a note, I don't think this was in the RNS and it's not new, but just observe that at the end of June, our partner ValiRX, announced that they were extending the exclusivity period for a small U.S. biotech company called FerumRx to complete a proposed sublicensing of one of the ValiRX compounds, VAL201, which is the compound as you guys will remember, where we had a risk-sharing agreement with you. So you know as much as I do on that. I don't have any inside track there. But I guess, just to note that, that is still under discussion. I thought it would just be worth noting of total income over the course of the last couple of years and, in particular, over the last 12 months. So what this dotted bar shows is simply the level of second half revenue for the year just completed that would get us to the Hybridan forecast, which I think is [ 860 ], if I'm correct, yes. We are saying today that we believe we're going to hit that, and that would represent almost an 18% growth over the previous year's revenue. Obviously, our previous year was down because of COVID and because of some risk-sharing activities that we engaged in, as I've discussed previously. Nevertheless, it seems to me that this represents a strong bounce back. And if we do hit that forecast or even overachieve against it, then either way that will represent another year where we have hit a highest ever total income level. Then just a quick update on the PARTNER study. So this is the observational clinical trial going on down in Portsmouth. We have interim data from about 24 patients, and we are using that to pull together a report for the NIHR right now. The study will continue to recruit until the end of Q3. And then during Q4, we will conduct a final analysis, which incorporates both the interim analysis, but also further patients that will have been recruited -- have already been recruited in fact, between now and then. Some of the things that we're looking at, just for your interest are the ability of the tool to predict clinically relevant events. Primarily, this relates to toxicity. So as we've talked about previously, the tool helps clinicians predict the level of neutropenia. That's the level of depression of white cell count associated with chemotherapy, in particular, docetaxel in this context. And that low level of white cells can sometimes be -- lead to certain adverse events with patients such as neutropenic fever. So one of the things that we're doing in our interim analysis is to look at what actually happened to these patients, to look at what the tool was predicting for them at that time and to try and make links. And obviously, I'm sure you guys can see that the potential value is where we can determine that we can have some predictive parent relation to those associations. The other thing, which we also think is quite interesting is in relation to the use of a drug called GCSF. It's fully spelt out on the slide there, but I'll call it GCSF. What this drug does is stimulate cells in the bone marrow to increase production of white cells. So it's often given by clinicians in conjunction with chemotherapy to preempt the reduction in white cells that is often associated with chemo. GCSF is a biological drug. Many forms of it are still on patent, and those patented forms are quite expensive, especially in the U.S. So you can see that if we -- if the tool is able to make any predictions about the potential utility or otherwise of this drug when used to treat patients that are being given chemo, that could be a useful thing as well. So I'm not saying that we will be able to, but this -- these are the sorts of things that we're looking at in relation to the tool. I had a lot of questions about next steps. Where is this initiative going? What happens after this? I'm not going to be able to give you fully satisfying answers at this stage, I'm afraid. Some of the possibilities going forward include further development or evolution of the tool to incorporate and take advantage of any findings that we generate from the analysis of the partner data. We still have a dialogue going with DoseMeRx, and this could also form part of that. And then the other thing that is an obvious possibility is to extend our work with, for example, in NIHR by applying for follow-on grants, which could potentially be larger than the -- I think it was approximately 150,000 grant that funded the current clinical trial. So there's some of the ways in which we can move this forward. So I'll just make a brief summary, and then I will go to the questions that we received prior to this call. And then I'll have a quick look at the questions that have been submitted over the course of this meeting as well, and then we'll see where we get to. So really, the purpose of this presentation was simply to say the company is performing per market expectations. Cash situation is good, in my opinion. We have made some investments this year, and that has led to a slightly higher level of cash outflow, but that, for the most part is a very deliberate strategy on the part of the company to invest for growth. And it is something that we said we would do when the time is right, and we believe the time is right. We are in the process of conducting an interim analysis of the PARTNER trial data, and we await the results of that with interest, as I described in the previous slide. And we are also continuing with the Board to look at other potential opportunities for growth as and when those are identified, and we feel that they're sufficiently tangible and likely we will bring those back to you guys and provide an update. Okay. So I will move on to the questions unless.

[Operator Instructions] But before I'll let Jim take a few moments to review the questions submitted already along with, obviously, those pre-submitted ones, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your Investor Meet company dashboard. Jim, as you quite rightly highlighted, you did see significant interest and questions from investors ahead of today's call. So if I may, just hand back to you and ask you to read out the questions both pre-submitted and those come in through the live meeting, and I'll pick up from you at the end.

Great. Thank you very much. Okay. So I will work through and answer as many of these questions as I have time to and feel in a position to. Some of them -- there are some that are quite similar to 1 another, and I will roll those together where I can. So I'm just going to start at the top and work my way through. So there are quite a few questions about whether the directors might buy shares. Why can't we buy shares? I mean that's always a tricky question. It's down to individual directors to decide whether they want to do that. I guess, just looking back at the history of the company, we have not generally been a company where directors have used shares in that way as buy or sell signal. So the first thing I would say is I would not interpret our purchasing shares or failing to purchase shares in your view as any particular sort of a signal. I think it's more just a reflection of who we are as individuals and how we approach working in small companies. What we are, however, is a company that controls its costs carefully, pays its employees and its directors very reasonable modest salaries, especially compared with the AIM average and a company where myself, my fellow Board directors and all of our employees are working extremely hard to try and keep our numbers moving in the right direction to try and make the forecasts that are out there for us and create long-term value in the company. So that's all I'm going to be able to say on that point. There are a couple of questions about significant shareholders. And again, it's -- I'm probably not going to be able to give you a fully satisfying answer. I mean you know the obligations in regard to notification are individual responsibilities of shareholders. So these Tier 1 forms, it's the shareholders that have to complete those, submit them to the FDA and send them to the company as well. All I can do is assure you that whenever we receive those forms, we then issue them as an RNS within a very short period of time. So everything we have, you have. Unfortunately, I cannot police whether or not individual shareholders accidentally or deliberately miss Tier 1 notifications. What we do as a company every approximately every 6 months is ask our registrar to do a beneficial ownership search and publish the result of that on our website. We cannot do that. I don't think it's appropriate for us to do that more frequently than we do it at the moment because it has a not insignificant cost associated with it. And I would prefer to spend that money on growing the company rather than repeatedly and frequently updating that information. The other thing to say is that, that beneficial search is simply -- it may or may not be accurate in the way it works, as I'm sure you know, is that the registrar writes to all of the private client brokers and ask them for information. If they're meant to reply generally, they do, but that information may not be perfect as it is not coming directly from the shareholders' concern. So if any of our significant shareholders are listening into this, obviously, I would encourage you to comply with your obligations and report any threshold changes to the market and to us, but that's all we can do about it as a company. Next question related to our pipeline. And do we still believe we have a strong pipeline. Was Servier the large pharma company that we spoke about? I think I tackled the second half of that question already. Yes, Servier was -- is the large pharmaceutical company that we spoke about before. In terms of the pipeline, we still believe it is strong. I mean, a little bit of it is like an iceberg. So some of it is not visible to you. What's visible to you is significant client wins that are announceable or where we agree with the client that we can announce them if they're smaller. But what is building at least the surface is layers of potential new clients from those where we've just had first contact through to those where we've had a dialogue through to those where we're in active discussions about a project through to those where a specific proposal is under discussion, and bringing on board a professional and dedicated Head of Business Development has really helped accelerate that formalization and put in place some process and structure around business development that we didn't simply have the resources to do before. Next question was about DNA damage repair work and are Merck happy with the outcome of the project? Are there more projects coming? Again, it's hard to be specific here. I would say that we have a very strong relationship with Merck that we're in a constant dialogue with them over the course of the year. around the commissioning of new projects. As we've said in the past, we have gradually moved away with Merck from commissioning everything in sort of November, December time to more of a rolling procurement where projects are commissioned and delivered over the course of the year. However, I can say with my hand on my heart that the total value of Merck projects for each of the last financial years has at least met or sometimes exceeded the original target that was announced back in 2017. So we feel like that relationship is strong and still going well. Let me just pick up on some questions I haven't already covered in my presentation. There's a question about whether or not we can apply for a patent on any digital assets that come out of the NIHR funded personalized dosing program. We keep this under constant review. I think those of you who maybe are invested in other companies with software will know that traditional patent, protection on software is not always possible or cost effective. However, there are other forms of IP such as copyright, know-how and trade secrets, which perhaps do apply in a more meaningful way to software, and we're looking at all of these, of course, as a way of protecting what we're doing. There is a question about DoseMeRx. I did mention that we still have an active dialogue with them. In terms of their relationship and the process with Tabula Rasa that was announced back in February, I think it was, again, I have no inside information on that. So all I see is what you see. I don't think they're going to tell me before they tell the market if and when something happens. As I have said before, our hope and expectation is that should that disposal be completed successfully, that DoseMeRx's new owner would be a larger company that is interested in personalized medicine and might, therefore, be looking to invest further in that field. And if that were the case, then I think Physiomics would be very well positioned to take advantage of that. And that's pretty much all I can say on that front. There's a question about Project Optimus, which I think I perhaps mentioned in a previous presentation. Project Optimus is an FDA initiative to look at and possibly even start to embed personalized dosing more in drugs as they're being developed. And here, the distinction is that our current program is focused more on drugs which have already been approved, but the underlying technology could be applied equally to drugs that are in the R&D process. All I can say is that we -- yes, we do believe that Project Optimus goals are very closely aligned to our own in relation to personalized dosing and might, therefore, represent some sort of a collaboration opportunity. I can't say any more at this time, but as and when there are any developments on that front, then we will clearly come back to the market and announce them. Okay. I think we've covered that. Yes, I think we've covered the pipeline question and our revenue. There's a question about the rate of growth. I mean, it's always tricky and at the risk of repeating myself, you saw from the earlier slide what the situation looked like when I arrived in the company. We really had 1 client, which was Merck, no pipeline and really minimal revenues that were insufficient to cover even the bulk of our costs over the course of the last 4 or 5 years. Myself and my colleagues have worked extremely hard to build us up to a situation where we have a nice stable of clients. We have a good portfolio of potential new clients. We've got significantly more substantial revenues than we had. We are in control of our expenditure, so that yes, this year, we've chosen to invest more but they're leaders we can put in either direction to manage our costs, and we have always done so very carefully and conservatively historically. I hope you will agree. So all of our efforts, all of our energy is dedicated to making this company bigger and ultimately profitable and worth more for you guys. I think I did Ducentis already. So I think that covers all of the questions that we received prior to the meeting that I can speak to explicitly. Let me just have a quick look through the Q&As that have come in to see if there's anything that I haven't already addressed. Okay. So there's 1 here saying it's great to see new names on the client roster. How much of this is down to recent additions to the team? How much scope is there for these new client relationships to grow? And how busy are you currently at prospecting new business? Well, I think I covered this a little bit. The new additions to the team, in particular, our Head of Business Development, has been instrumental in closing a number of the deals that have been announced over the last 12 months. What we hope and -- well, let me put it more strongly, what we expect to see over the course of this current financial year is that, that additional business development resource will lead to new client wins that we would not otherwise have had without that resource. Clearly, we will continue to seek and hopefully win repeat business with existing clients as well. But business development will be focused on getting new clients, and we are extremely busy and very actively doing that right now. Okay. There's another question here. Our pharma back to normal now and focusing on pre-COVID R&D? Or are they still focusing on COVID-related vaccines? Well, obviously, we don't work a lot in the vaccine space. However, my impression is that there were a number of companies that did well out of COVID by getting involved in testing or in vaccines. I think the ones that were involved in testing, some of those -- that they've kind of had their day and mass testing is no longer such a material thing as it used to be. They're now having to think about how they can live their lives without that extra boost of testing revenue. In terms of the vaccines, I think the larger companies that are involved in vaccine R&D will continue to do that because COVID has not gone away as you can see when you turn on the news every day. And so there will continue to be some focus there. I think for our clients that are mainly in the oncology space, we see no diminution of activity in oncology R&D and companies are still spending. There is another question here saying what is your USP compared with other companies offering similar services? So I think it's a number of things. So I think the Virtual Tumor platform that we have is unique. No one else has that. It's very useful for looking at combination treatments of oncology in oncology settings. I think the fact that we focus mainly on oncology as a modeling company is -- gives us a particular specialization that clients value. And I think at the moment, while we remain in a relatively small, I think the flexibility and the nimbleness that, that enables us to give to clients is highly valued. I think that's the last question that I have. I'll close at that point and wish you all the best.

That's great, Jim. Thank you very much indeed for your time and for updating investors this afternoon. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? Just wait to take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Physiomics plc, we'd like to thank you for attending today's presentation, and may I wish you all a very pleasant afternoon. Thank you.